Bank has 'failed' over inflation
A top investment manager has told the BBC that the Bank of England has "failed" in its job of keeping inflation at its target 2%.
He believes 3%, 4% or even 5% will persist as we import inflation from Asia, where wages are rising.
Bill McQuaker of Henderson Global Investors said the Bank's record of forecasting inflation has been "poor".
A Bank of England spokesman said: "The Bank has never claimed to be able to forecast the future with certainty."
Bill McQuaker, who manages £5bn in Henderson's multi-manager and multi-asset funds, explained his thoughts to BBC Radio 4's Money Box programme.
"If you take [the Bank's] remit at face value that its sole purpose is to deliver inflation at 2% it is difficult to argue that it hasn't failed in the last couple of years," he said.
Mr McQuaker accepts that with the economy facing recession the Bank has had to balance the danger of raising interest rates and pushing it into further difficulties.
"The challenges [the country] has faced have been very considerable and that has led them to accommodate some slippage in terms of delivered inflation," he said.
And he expects inflation to stay high for some time.
"I wouldn't be surprised if the inflation rates that we have seen for the last couple of years of 3%, 4% or even 5% persist for longer than the Bank of England and many in the markets think."
That is partly because the Bank has not taken account of rising prices in other countries which affect food and goods we import.
"Asian wages are growing quite rapidly. We have imported deflation from Asia, cheaper clothing, electronics and the like, and that is coming to an end and now we are importing inflation," said Mr McQuaker.
He also criticises the Bank for consistently getting its forecasts of inflation wrong.
Analysis of the Bank's quarterly Inflation Reports back to the start of 2009 show the Bank regularly predicting inflation will fall within one or two quarters.
Instead inflation has continued to rise.
And in its report published in May 2010 the Bank forecast that inflation would have fallen to 1.4% within a year. In fact the inflation rate in May this year was 4.5%, more than three times the Bank's forecast of just a year ago.
"As an exercise in forecasting an important feature of the economy the Bank has done a poor job in the last couple of years," Mr McQuaker added.
And he does not think its current forecast is correct.
Published in May, it shows a brief rise in inflation to around 5% - followed by a sharp fall to hit its target 2% by the middle of 2013.
"The MPC's remit is clearly to achieve the 2% inflation target: it remains totally committed to that target and sets interest rates solely in order to achieve it," a spokesman for the Bank of England said.
"But the remit also explicitly allows the MPC some flexibility when the very sharp movements in interest rates, that would be required to keep inflation at 2% at all times, would cause unnecessary damage to the economy, employment, and people's living standards."
BBC Radio 4's Money Box is broadcast on Saturdays at 1200 BST, and repeated on Sundays at 2100 BST.